Buying A Timeshare … Just Don’t Call It Investing

Has a client ever come to you about investing in a timeshare? The natural reflex is to dismiss the idea out-of-hand, but with publicly-traded companies now offering them, timeshares are beginning to escape the reputation of high-pressure sales tactics and buyers’ remorse.

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    Buying A Timeshare … Just Don’t Call It Investing

    Buying A Timeshare … Just Don’t Call It Investing

    Has a client ever come to you about investing in a timeshare? The natural reflex is to dismiss the idea out-of-hand, but with publicly-traded companies now offering them, they are beginning to escape the reputation of high-pressure sales tactics and buyers’ remorse.

    Why People Buy Timeshares

    Though many purchases are ill considered and based on a moment’s emotion, some find that a timeshare suits their lifestyle.

    For starters, they may be less expensive than a lifetime of vacations. The average price of a timeshare is $22,900, depending upon its size and location,1 while annual maintenance fees generally come in around $1,000.2

    One of the criticisms is that buyers are typically locked into the same location and same week of every year, leaving little flexibility to accommodate the uncertainties of a busy life. In response, the industry has been evolving away from “fixed weeks” to a “vacation club” approach in which points may be used to exchange dates and locations for when and where an owner wants to vacation.

    The top timeshare brands have resorts all over the world, providing a timeshare owner with the option of travelling to new and different places without incurring lodging expenses. Smart owners can stretch the value of their points by visiting places off season and/or by reserving a unit smaller than the one they own.

    Worst Investment Ever!

    Individuals may be split on whether a timeshare makes sense for them, but no one can reasonably call the purchase an investment. Here’s why—timeshares lose value immediately upon the signing of a contract, and they will produce little to no income.

    More problematic is that the owner has no control over the annual maintenance fee. It starts out at one number, but may rise over time to potentially unreasonable levels. This “investment” may end up becoming an unforeseen and meaningful drain on future cash flow.

    Here’s one way to illustrate to clients how bad an investment it is. Ask them to multiply the cost of buying one week’s use of a unit by 52. Then ask them if they think that number represents the fair market value of that unit.

    Finally, investments are generally characterized by their ability to sell at a future date. Timeshare owners shouldn’t ever expect to be able to sell their ownership slice. By one estimate, only 3.3% of owners in the past two decades successfully sold their timeshare.3

    Sources:

    1. https://www.buyatimeshare.com/timeshare-industry-statistics.asp#:~:text=Spending%20by%20timeshare%20owners%20and,spending%20per%20person%20is%20%241%2C032.
    2. https://www.arda.org/average-timeshare-maintenance-fees
    3. https://www.biggerpockets.com/blog/timeshare-worthwhile-investment

    Please reference disclosures: https://blog.americanportfolios.com/disclosures/

    About The Author

     

    Director of Finance 
    800.889.3914, ext. 168  

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